Working through a mobile app
The Supreme Administrative Court’s ruling of 12 May 2023 (KHO 2023:42) causes changes to tax treatment in certain circumstances.
In accordance with the ruling, remuneration paid to the self-employed worker minus fees of the worker’s invoicing-service company and minus the employer's health insurance contribution constitutes wages subject to tax.
The guidance is being updated. Read more about the changes (in Finnish)
You can use mobile apps to offer and receive work in exchange for pay, offer and receive job assignments, and act as an intermediary. Both the mobile app provider and the customer who orders the work may be bound by legal obligations regarding the compensation to be paid to the worker.
Employment contract or commissioning contract?
A worker hired through a mobile app enters into an employment contract or a commissioning contract with the ordering customer or the mobile app provider.
As a rule, the parties can mutually agree whether they sign an employment contract or a commissioning contract. However, the contract and the terms of contract must correspond to the actual circumstances. It is advisable to consider the characteristics of different contract types before drawing up a contract. In this way you can ensure that the contract type, the content, and the actual activity are as the parties intended.
Read more about the difference between wages and trade income in the Tax Administration’s guidance Tax treatment of wages and trade income (available in Finnish and Swedish, link to Finnish).
In taxation, compensation paid in an employment relationship is treated as wages, and compensation paid in a commissioning relationship is treated as trade income. The payor’s obligations and the worker’s tax assessment are different depending on whether the compensation paid is wages or trade income.
Obligations of the ordering customer and the worker
If the worker and the customer who orders the work have agreed on an employment relationship, the customer is the worker’s employer and must withhold tax on the pay and pay the employer's health insurance contribution. The customer also has to take care of other employer’s obligations, such as pension insurance contributions.
If the ordering customer and the worker have a commissioning relationship, the compensation paid for the work is trade income. The customer only has to withhold tax on the trade income if the worker is not in the prepayment register. The recipient of trade income pays their own pension insurance contributions. The trade income may be taxed as the worker’s business income or other earned income, or as their company’s income. If the revenue from the sale of services exceeds the VAT threshold of small-scale business, the worker taking up the assignment must also register for VAT.
Read more about registering for VAT
Obligations of the mobile app provider
If the mobile app provider and the worker have agreed on an employment relationship, the app provider is the worker’s employer and must withhold tax on the wages, pay the employer's health insurance contribution and take care of the other employer’s obligations, such as pension insurance contributions.
If the app provider and the worker have a commissioning relationship, the compensation paid for the work is not wages but trade income. The app provider only has to withhold tax on the trade income if the worker is not in the prepayment register.
The mobile app provider can also act as an intermediary. In this case, the employment or commissioning relationship is agreed on between the worker and the customer who orders the work. The intermediary and the ordering customer can agree that the intermediary will take care of the statutory payment obligations on behalf of the customer.
Example 1. Minna has registered with a mobile app and is seeking a job through it. A customer offers Minna a home-cleaning job. Minna signs an employment contract with the ordering customer through the mobile app. In this example, the app only serves as an intermediary, although money also moves through the app. However, the ordering customer and the mobile app provider can agree that the app provider takes care of Minna’s wages, tax withholding and the employer’s contributions and insurance contributions on behalf of the ordering customer.
Example 2. Matti does occasional renovation and refurbishment jobs through the mobile app. He uses his own tools and pays his own social insurance contribution. Matti and the mobile app provider have entered into a commissioning contract. Matti goes to perform a painting job he has found through the mobile app. The ordering customer has signed a separate contract with the mobile app provider. In this case, the mobile app provider is Matti’s principal customer and pays the compensation to Matti. Because Matti is in the prepayment register, no tax is withheld on the trade income. Instead, Matti makes prepayments at his own initiative.
Example 3. Heikki works as a food delivery man for restaurants from time to time. He receives the assignments through a mobile app. Heikki and the mobile app provider have entered into a commissioning contract, according to which Heikki will deliver restaurant food to customers using his own car based on the assignments he receives through the mobile app. In this case, the mobile app provider is Heikki's principal customer and pays the compensation to Heikki. The compensation Heikki receives is trade income. Because Heikki is not in the prepayment register, the mobile app provider withholds tax on the trade income.
Heikki has to pay some minor telephone expenses and car’s fuel and operating expenses, including an occasional car wash, for his delivery assignments. He can claim a deduction for these expenses insofar as they can be regarded as expenses for the production of income. Heikki keeps a driver’s log that shows how much of the annual distance driven relates to the production of income and how much to private use. In this example, 15% of the car expenses relate to the production of income and 85% to private use. Further, 10% of Heikki’s telephone expenses relate to the production of income and 90% to private use.
Heikki can claim a deduction for the expenses that relate to the production of income, i.e. for 15% of the car expenses and 10% of the telephone expenses. Heikki enters the deductible expenses in euros in this tax return as expenses for the production of earned income. He cannot deduct the portion of the phone and car expenses that relates to private use.
Example 4. Sini has registered with a mobile app. Sini and the mobile app provider have entered into an employment contract. Sini’s job is to deliver food from a restaurant to customers. The mobile app provider is Sini’s employer and pays Sini’s wages, withholds tax, and pays the employer’s contributions and insurance contributions.
For the delivery assignments, Sini incurs minor expenses that the employer does not compensate: telephone expenses and car’s fuel and operating expenses, including an occasional car wash. Sini can claim a deduction for these expenses insofar as they can be regarded as expenses for the production of income. However, she cannot deduct the portion of the phone and car expenses that is considered private use. Sini’s total expenses for the production of income during the year are €500.
An amount of €750 is automatically deducted from wage income every year as a deduction for the production of income. This deduction is granted automatically without a separate request. If the taxpayer’s total wage income is less than €750, the maximum deduction equals the amount of wage income. Sini does not need to report her expenses for the production of income, because they are less than €750 a year.
Specific instructions for “light” entrepreneurship: How to claim the deductions for travel expenses and other deductions on your tax return